In the News

Stimulus Package Promotes Energy-Efficiency Spending

Builders and remodelers looking for an edge in the current
housing market may want to brush up on their energy
retrofitting and weatherization skills. That’s because a
significant portion of the $787 billion American Recovery and
Reinvestment Act of 2009 — the stimulus package —
passed by Congress and signed by President Barack Obama in
February contains major spending provisions and tax cuts
intended to improve the energy efficiency of existing homes. In
all, more than $20 billion is targeted for investments in
energy efficiency (see table, below).

Improvement credits. Under the plan,
IRS Section 25C tax credits originally introduced as part of
the Energy Policy Act in 2005 and reinstated last fall by the
Bush administration have been extended and increased. For
existing homes, qualifying improvements — windows and
doors, insulation, metal and asphalt roofs, hvac equipment,
nonsolar water heaters, and biomass stoves — are eligible
for a 30 percent homeowner tax credit. Under the old rules, a
10 percent credit was capped item by item (for example, $200
for windows, or $150 for a furnace), with a lifetime cap of
$500. The new rules eliminate the individual caps and instead
offer a more generous aggregate tax-credit cap of $1,500.

For building-envelope improvements, the credit applies only to
the cost of the components. For energy equipment, installation
costs are also eligible.

Qualifying standards have been raised. For example, not all
Energy Star–rated windows are eligible. Only windows with
a U-value and solar heat gain coefficient (SHGC) of 0.30 or
less qualify for the credit. For details on qualifying
products, go to energystar.gov.

The credit applies to projects completed between February 1,
2009, and December 1, 2009. (The IRS is still working on
guidelines for projects completed in January of this year).
Homeowners will have to file IRS Form 5695 by April 2010 and
should save project receipts and manufacturer certification
statements for each qualifying improvement.

Alternative energy. For both existing
homes and new construction, a 30 percent tax credit —with
no cap — is available for qualifying geothermal heat
pumps, solar voltaic systems, solar water heaters, wind energy
systems, and residential fuel cell systems. Under the old
rules, heat pumps and solar hot-water heaters were capped at
$2,000, and wind projects at $4,000. While these alternative
energy credits can’t be claimed along with the
improvement credits above, homeowners have until 2016 to make
the upgrades.

Home performance testers look to be busy as billions of dollars
in new DOE weatherization funds become available.

Weatherization. Federal funding from
the Department of Energy for its low-income Weatherization
Assistance Program has been increased from $447 million to $5
billion, to meet the Obama administration’s goal of
increasing the number of households weatherized each year from
140,000 to 1 million. While details about funding levels and
how the money will be distributed are still being developed,
state weatherization programs — already ramping up after
last year’s spike in energy prices — are expecting
both a bump-up in their annual operating budgets and a one-time
infusion of stimulus money equal to 10 to 30 times their annual
federal allocation.

In some states, local nonprofit community-action agencies
provide nearly all low-income weatherization services; in
others, private contractors perform some or all of the work.
But with the surge of funding, agencies more accustomed to
saving pennies than spending dollars will need to quickly
expand in-house training programs, hire additional field and
administrative staff, and partner with remodelers who can do
similar work. The Office of Economic Opportunity Studies
estimates that for every $1 billion in DOE weatherization
funds, more than 26,000 jobs will be created, for positions
ranging from “green-collar” workers to trainers,
auditors, and state and local administrators.

Builder credit. One measure that
hasn’t changed is the $2,000 home-builder tax credit for
homes that exceed — by 50 percent — standards set
by the 2004 International Energy Conservation Code (IECC) for
insulation, heating, and cooling. (For modular-home
manufacturers, it’s a $1,000 tax credit on units that
save 30 percent.) This credit expires in December and applies
to homes completed after August 8, 2005. Owners or designers of
commercial buildings that save at least 50 percent of the
heating and cooling energy established by ASHRAE standard
90.1-2001 can claim a tax deduction of up to $1.80 per square
foot.

Additional spending. The plan
allocates another $5.5 billion to energy-efficiency
improvements for federal buildings, and $4 billion to
rehabilitating public housing. State energy program grants
— for energy-efficiency incentives and energy-code
development — receive $3.1 billion, and another $3.2
billion goes to energy-efficiency and conservation block grants
for state and local programs. Even Department of Labor
workforce training programs benefit under the plan, receiving
$500 million to train workers in careers in renewable energy
and energy efficiency.

What’s the outlook? No one
knows how effective the combination of tax credits, rebates,
and historically low interest rates will be at getting home
buyers and homeowners to spend when the overall economic
picture is still so gloomy. But it looks like remodelers have
the most to gain from the stimulus package. As a group
they’re in better shape than home builders (see
“Housing Market at a Glance,” previous page),
though they’re still being battered by falling home sales
(a major driver of home improvement spending), shrinking home
equity (typically used to finance improvement projects), and a
frozen credit market. But if the stimulus plan works the way
its authors and supporters hope it will, the public’s
interest in sustainable remodeling will dovetail perfectly with
its focus on improving energy efficiency — which can only
be good news. — Andrew Wormer

PEX Approved in
California

Following the lead of every other state and many of its own
counties and cities, the California Building Standards
Commission finally approved the addition of PEX plastic pipe to
the California Plumbing Code. When the new CPC is adopted in
August, PEX will be approved for both residential and
commercial construction. Meanwhile, local jurisdictions are
free to approve PEX before statewide adoption, as many already
have.

First proposed in 2000, the code change has been the subject of
a protracted political battle. In 2001, the CPC listed PEX as
an acceptable material for domestic water piping but
didn’t actually approve it for installation. Soon after,
a suit filed by the Plastic Pipe and Fittings Association
(PPFA) resulted in a court order allowing the material’s
use without an environmental review. Then, in 2004, an appeals
court reversed the court order, leading to an exhaustive
environmental study of the product by the California Building
Standards Committee. “PEX has probably been studied,
scrutinized, and analyzed more than any nonmetal building
material in history,” says Richard Church, executive
director of PPFA, referring to a 296-page environmental impact
report on the plastic pipe.

The code change was opposed by the Coalition for Safe Building
Materials, a lobbying group consisting of the California Pipe
Trades Council, California Professional Firefighters, the
Center for Environmental Health, and the Sierra Club. The
coalition argued that PEX pipe contains harmful chemicals
— such as benzene and trichloroethylene — that
could leach into drinking water. But according to NSF
International, an independent testing laboratory, PEX pipes
contain neither benzene nor trichloroethylene, and trace
amounts of any other potentially harmful compounds left over
from the manufacturing process would dissipate within 90 days
to levels below those considered by the EPA to pose a health
risk. — Andrew Wormer

Ever wonder how the CEOs of big production builders are
faring in these troubled times? According to a recent article
in the L.A. Times, Jeffrey Mezger, chief executive of KB Home,
received $9.6 million compensation in 2008. Of that, $2.75
million was part of a “nonequity incentive plan”
rewarding Mezger’s ability to limit losses — in a
year when KB lost nearly $1 billion.

Sears has launched an online name-your-price home-improvement
site called ServiceLive.com. Users select prescreened local
contractors, describe their repair or project, and specify the
amount they’re willing to spend. After they upload funds
to a ServiceLive account, the first provider to accept their
terms wins the project.

A North Carolina construction worker who says co-workers shot
nails at him, used racial epithets, and tried to hang him on a
job site was awarded $50,000. However, a federal jury ruled
that company owner Willie Farrell of Farrell Log Homes did not
personally create a work environment that allowed the
abuse.

A good way to get rid of the 300 million or so used tires
generated by the U.S. each year is to burn them in Portland
cement kilns, says the Portland Cement Association. A study
funded by the organization concludes that kilns that burn a
mixture of coal and tire-derived fuel (TDF) emit less
particulate matter, nitrogen oxide, metal, dioxin-furan, and
sulfur dioxide than kilns burning only coal.

Several Amish families have sued the town of Morristown, N.Y.,
after officials refused to grant building permits for the
sect’s traditionally built homes. In a federal lawsuit,
members of the Old Order Swartzentruber group, who avoid the
use of electricity and indoor plumbing, claim that code
requirements for smoke detectors, engineering plans,
construction inspections, and other provisions

Housing Market at a Glance

From December 2008 to January 2009, sales of new single-family
homes fell 10.2 percent to a seasonally adjusted rate of
309,000 units, according to recent statistics released by the
Department of Commerce. This figure is almost 50 percent below
the January 2008 estimate of 597,000. The median sales price
was $201,100.

Housing starts in January 2009 were at a seasonally adjusted
annual rate of 466,000, 16.8 percent below the revised December
2008 estimate of 560,000, and 56 percent below the revised
January 2008 rate of 1,064,000. This is a new record low in a
downturn that has continued for seven straight months.
Regionally, starts fell nearly 43 percent in the Northeast,
29.3 percent in the Midwest, 12.8 percent in the South, and 6.4
percent in the West.

Sales of existing homes fell in January by 5.3 percent over the
previous month to an annual rate of 4.49 million, the lowest
since 1997, according to the National Association of Realtors.
The median price dropped 15 percent from a year ago to
$170,300, a six-year low. Distressed properties accounted for
45 percent of all sales, which declined in three out of four
regions in the country (only the West remained unchanged).
Sales declined the most in the Northeast (15 percent).

In the remodeling market, homeowner spending on improvements
continues to decline, but at a more modest 10 percent to 12
percent annual rate. According to the Joint Center for Housing
Studies of Harvard University, the remodeling market —
which peaked in the middle of 2006 and has dropped steadily
since 2007 — will likely shift from upper-end
discretionary projects back to system upgrades, exterior
replacements, and basic maintenance (see chart,
above).